Why the Paladin Energy (ASX:PDN) share price is down 10% today

Paladin Energy shares have tumbled 38% from their mid-September highs.

The Paladin Energy Ltd (ASX: PDN) share price might have hit a near-term top, sliding 38% from its 16 September highs of $1.21.

At the time of writing, Paladin Energy shares are down 10.24% to 74.5 cents.

man grimaces next to falling stock graph

Image source: Getty Images

Why the Paladin Energy share price is plunging

Uranium prices ease

Uranium prices skyrocketed from around US$30/lb in mid-August to above US$50/lb in late-September.

This drove a sharp re-rate across the uranium sector, from large cap players like Paladin Energy to newly-listed explorers like 92 Energy Ltd (ASX: 92E).

It looks like the opposite is now taking place as uranium prices ease to US$44.3/lb, according to Trading Economics.

Despite the recent pullback, the Paladin Energy share price is still up 48% in September.

Uranium producers need higher prices

Uranium prices plunged from all-time highs of US$140/lb in 2007 to the mid-$20s between 2016 and 2020.

The record low prices drove Paladin Energy to the brink of administration in 2018, surviving a complex 7-month restructure where debt was swapped out for equity.

According to Canadian uranium explorer Standard Uranium, around 46% of the world's identified uranium resources have an extraction cost higher than US$59/lb.

Even after uranium's recent surge to US$50/lb, production for most players remains uneconomical.

In the case of Paladin Energy, the company's March capital raising presentation highlighted life of mine production cash costs of US$27/lb. That's in addition to freight and logistics of US$0.95/lb, sustaining capex of US$2.90/lb and government royalties set at 3% of sales.

What's next for uranium?

Uranium prices have largely been bolstered by Sprott's Physical Uranium Trust, the world's largest uranium fund focused on buying physical uranium.

The fund amassed 28 million lbs of uranium by 18 September, according to Sprott's Twitter.

The last time Sprott provided an update regarding physical uranium purchases was on 17 September, the day after the Paladin Energy share price briefly touched a 9-year high of $1.21.

The lack of sustained buying activity from Sprott might be the reason why uranium prices have eased in recent days.

Looking at the bigger picture, Standard Uranium believes uranium could play a key role in the global move towards cleaner energy.

The Canadian uranium explorer said that uranium demand is set to grow given the 444 operating nuclear reactors worldwide. That's in addition to 54 more under construction and 100 planned for development.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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